Australian banks not passing on interest rate increases to customers

THE major banks aren't passing on official interest rate increases to customers with deposit accounts.

They have also reduced interest payments, even though the Reserve Bank of Australia has raised rates.

The big four banks have trumpeted their decision to cap rate rises on their standard variable home loan rates at a quarter of a percentage point - matching the RBA's April decision.

But when it comes to deposit accounts, customers are being short changed.

ANZ, NAB, Westpac and the Commonwealth Bank have, so far, failed to pass on increases in the cash rate to existing savings accounts with more than $5000 in them.

The average interest has been stuck at 3.9 per cent.

The interest level is actually half a percentage point lower than it was in December, even though rates have risen twice since then.

Australia Institute senior fellow David Richardson, a former Labor adviser, said the Rudd government needed to consider re-regulating how banks paid interest on deposit accounts.

That would take Australia back to the 1980s, before the Hawke government embarked on banking de-regulation.

"There's a case for opening up debate on that," Mr Richardson said.

But Australian Bankers Association chief executive Steven Munchenberg rejected the notion that interest on savings accounts should go up in tandem with increases in the RBA cash rate.

"Australian mortgages are not funded by savings accounts so the assertion that savings haven't gone up with the cash rate has very limited bearing," he said.

Savings accounts are less lucrative for banks than term deposits.

"Because of their volatility, they're a less attractive source of funding," he said.

Three-year term deposit accounts with $10,000 to $25,000 in them have also been had little movement, with average interest stuck at 6.6 per cent.

The rate actually fell from 7 per cent to 6.6 per cent in March, even though the RBA increased rates by a quarter of a percentage point during that month.

Mr Munchenberg said term deposit interest rates did not fall sharply in late 2008 and 2009 when the RBA cut rates aggressively.

Canstar Cannex financial analyst Peter Arnold said interest on savings accounts was more closely tied to the RBA cash rate, while interest on term deposit accounts was linked with money market movements.

He was hopeful the banks would put up interest rates on savings accounts in coming days.

But customers with less than $5000 in the banks aren't likely to be so lucky.

Interest on these accounts with the big banks has been set at zero since December 2001, Mr Richardson said.

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